When Bitcoin plunged from around $30,000 to under $20,000 in just over a week last year, Three Arrows Capital co-founder Su Zhu described the nosedive as the "nail in the coffin" for his fund. of coverage.
Fast forward to today, and the biggest cryptocurrency it just got back on that path from $20,000 to $30,000 in the last month, but the industry is a shadow of what it was the last time the token crossed that milestone. That's because several more coffins were slammed shut in the domino-like wave of bankruptcies that followed the collapse of Three Arrows: Voyager Digital, Celsius, FTX, Blockfi, Genesis Global and other previously high-flying startups.
It's clear that while the mood has improved compared to last year's apocalyptic vibethe promising Bitcoin the recovery alone will not be enough to repair all the damage caused by last year's scandal-ridden recession.
“The sentiment here doesn't seem like the last few weeks means we can pretend the last 10 months never happened,” Oliver Lynch, chief executive of trading platform Bittrex Global, said, speaking on the sidelines of a crypto conference. in Paris. “But there is certainly a feeling that perhaps this indicates that a line can be drawn under those scandals and we can re-evaluate – and value – cryptocurrencies without all the noise of rumors and misdeeds.”
That alleged wrongdoing has sparked an avalanche of regulatory scrutiny and high-profile prosecutions in the US.
Among the highlights: FTX's Sam Bankman-Fried is awaiting trial on fraud charges; Do Kwon, co-founder of Terra blockchain, is facing trial for his role in the collapse of that project; Binance and its CEO Changpeng “CZ Zhao have been sued by the Commodity Futures Trading Commission for a variety of alleged violations; and coin base Global Inc. has received notice that the Securities and Exchange Commission intends to sue the company. Binance and Coinbase have denied wrongdoing; Bankman-Fried has pleaded not guilty.
Then there is the recent failure of crypto banks Silvergate Capital Corp., Signature Bank and Silicon Valley Bank. While often cited as a bullish catalyst for Bitcoin as they revived their origin story as an alternative to untrustworthy banks, the fall of those lenders also severed key ties to the US financial system, helping to make the bright future of the cryptocurrency industry as uncertain as ever.
Many of the retail investors burned by last year's price crash appear to be licking their wounds, rather than taking new risks, because the amount of money involved in decentralized finance projects remains subdued. While the total value of coins locked in DeFi projects has risen more than 25% since early January, at around $50 billion it is still a fraction of the $180 billion peak reached in December 2021, according to the site. web DeFiLlama.
At the same time, thousands of jobs they have been lost to the industry and hiring has not picked up. In a sign that the supply of talent is still outpacing demand, blockchain project Concordium received more than 350 applications for a couple of recent openings, its co-founder and president Lars Seier Christensen said. "The space is maturing a bit, realizing that the money tree available a couple of years ago has withered a bit," he said.
Investments from venture capital firms have slowed dramatically. Private financing for crypto Opening globally it fell to $2.4 billion in the first quarter, an 80% decline from its all-time high of $12.3 billion during the same period last year, according to PitchBook.
“Much of the industry is still in a wait-and-see mode,” said Matteo Dante Perruccio, international president of crypto wealth manager Wave Digital Assets. “There has been a flight to quality and the beneficiaries are those companies that were not affected by the crypto winter.”
Another way this bullish move is different: The eye-catching 83% rally in Bitcoin this year has not been matched by newer coins. Ether, which far outperformed Bitcoin between 2020 and 2021, is up 71% this year. The Bloomberg Galaxy DeFi Index that tracks the largest decentralized finance protocols has re-docked only about a tenth of last year's 2,000-point drop.
“We could be looking at a case of seller exhaustion combined with a renewed bullish narrative following the banking crisis, all mixed with generally low liquidity which has helped drive the price of BTC higher,” said Clara Medalie, director of research at the provider. Kaiko market data. .
Despite all the pessimism and uncertainty, progress in the evolution of the industry has continued. Ethereum this week completed what appears to be a successful upgrade to its network. The so-called Shanghai upgrade, which allows investors to withdraw Ether coins they had locked up for bounties as part of a "proof-of-stake" system to safeguard the network, could draw billions of dollars into Ether even after that SEC Chairman Gary Gensler indicated that he believes the token should be regulated as a security. The price of Ether rose above $2,000 again this week for the first time in six months. "I don't think there is the mania or enthusiasm that we saw at $30k or $40k, but there is still, behind the scenes, quiet progress," said Simon Taylor, chief strategist at Sardine, a fraud prevention startup whose Clients include fintech and crypto companies.
The macro image has also changed, potentially for the better. A year ago, the Federal Reserve and other central banks were just beginning what would become a series of interest rate hikes that reversed a years-long easy-money policy. With the end of that tightening cycle now closer, the conditions may once again be ripe for a crypto push.
A big question is how enthusiastic traditional financial institutions will be, and whether they will be willing to step in to fill the roles once played by failed crypto companies like FTX. There are some indications that it could be happening. Nasdaq Inc., for example, expects its digital asset custody services to launch by the end of the second quarter.
In the long term, up to $5 trillion could be converted into new forms of money, such as central bank digital currencies and stablecoins, by 2030, according to a Citigroup research study. Another $5 trillion worth of traditional financial assets could be tokenized, helping drive mass adoption of block chain technologies, according to the report.
Still, for Michael Purves, chief executive of Tallbacken Capital Advisors, the “show me” threshold will be higher this time around for institutional investors, keeping in mind that the role cryptocurrencies should play in a portfolio is a moving target. Once touted as a hedge against inflation, like internet-age gold, it collapsed during the worst consumer price rise since the 1980s.
“Institutions started taking Bitcoin seriously after Bitcoin broke $20,000 in 2020 and played a key role in the subsequent rally to $69,000,” he wrote in a recent note to clients. “This time, however, their long-term record of failing to provide portfolio diversification will weigh heavily on institutions, and they probably have bigger headaches to worry about.”
